Scoring Your Credit - How's Your FICO?
Choosing a lender isn't the first step in becoming a homeowner. The content of your wallet starts the home buying process. To realize your goal of owning a home, considering your credit score is a must along with the type of lender for which you'll qualify in Fresno, California.
A FICO score is a collection of your years of credit history based on a model developed by Fair Isaac and Company. Most people traditionally have a score of 600, but scores are tiered from 300 to 850. Even though more people these days are experiencing job loss and delinquent credit cards, FICO scores aren't necessarily adjusted "on a curve." A low score is a low score and that often means you can't get a decent interest rate. Some of the pieces in determining your FICO score include:
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — Do you pay your bills on time each month?
- Credit to Debt Ratio — How much do you owe versus how much credit you have available?
- Credit Inquiries — Do you have too many open accounts?
When you pull your credit report, you'll see that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to determine your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. You have a credit score with all three of the bureaus.
Lenders want to make sure that giving you a loan is a safe move. Your FICO score gives lenders a view of what type of borrower you'll be based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 700 or higher to get a satisfactory interest rate. If your score is lower, you can still qualify for a loan, but the interest paid over time could be more than double that of an individual with a stronger FICO score.
Staying on top of your FICO score is the first step in buying a home. Contact us and we can help you get on the right track to the home of your dreams.
How do you obtain a better score? Building your FICO score takes time. It can be difficult to make a significant change in your number with quick fixes, but your score can improve in a year or two by monitoring your credit report and by wisely using credit. The most important thing is to know your FICO score. You'll improve your credit score by using these pointers:
- Correct your credit report. If you find incorrect items on your credit report, contact the bureau requesting that the item be removed. If you have a common name or the same name as a family member, you'll want to pay extra attention to make sure the activity reported is correct.
- Even out your debt. At first, this doesn't seem like a good idea. But, you want to avoid of having one card that is at the maximum and have the rest of your cards at a zero balance. It's better to have each of your cards at about less than 40% of their credit limit than to have the majority of your debt sitting on one card.
- Apply for service station cards or store credit. For those who have no credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to begin your credit history, increase your credit limits and stay on top of your payments, which will raise your credit. You must always avoid maintaining a large balance for more than a couple of billing cycles because these types of cards usually have a higher interest rate.
- Don't let your cards get dusty. Whether you're just getting started with credit, or if you've got older cards, use your cards so that your accounts maintain an active status. But, pay them off in one or two payments.
- Stay on top of payments. Late payments kill your FICO score. It's where people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to restore your credit this way, but it's the most reliable way to prove that you're able to make payments to a bank.
Knowing the ways you can build up your FICO score, you can move toward becoming a homeowner. Know that when it's time to apply for a loan to purchase a house, you'll want to keep your credit inquiries within a two-week window to avoid a negative mark on your credit score. With the help of Real Pro Properties, the loan process can be a stress-free experience so you, too, can achieve home ownership.
Learn more about FICO scores at myFICO.com, Fair Isaac's informational site and once per year, for free, you can review all three of your credit reports at annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: equifax.com, experian.com and transunion.com.